Types of Audit – Forensic Audit
A forensic audit is a type of financial information service which the professional forensic accounting firms will offer. Typically, companies require it for legal purposes.
To perform a forensic audit, the audit firms in Johor Bahru need to possess a substantial amount of background and expertise which add up to their accounting and auditing skills. Generally, forensic audit requires the auditors to acquire skills in both accounting and auditing as the work they perform are associated with investigations on financial reporting (Also see Distinguishing Financial Accounting and Management Accounting).
If the forensic auditors want to investigate the financial data and financial statements of a firm, they need to acquire an in-depth understanding of the way it keeps its accounting record and manages its accounting treatment so it is really a myth to say forensic auditors do not need to know about double entries (Also see Advantages of double entry accounting). They need to know those treatments, no matter they are normal or complex. This is because typically, the fraud that occurs in financial reporting involves critical processes and critical treatments.
Apart from having auditing and accounting skills, forensic auditors must possess strong analytical skills which are crucial in conducting an analytical review on financial transactions. Sometimes, people would call it investigation skill.
As the report that forensic auditors issue serves for court purposes most of the time, a majority of them have a background in law. Such a background helps them in easing their work.
Typically, if the auditors want to provide forensic audit services, they will require the license from the local authorities before they can offer the service. Sometimes, they obtain the license that enables them to provide audit and assurance services. Thus, some audit firm would also offer forensic audit.
The Investigation Process of Forensic Audit
The process of a forensic audit is similar to that of the financial statement auditing. Auditors have to prepare appropriate planning, which includes pre-acceptance, planning for investigation, substantive investigation procedures (Also see Audit Procedures That Helps in Detecting Fraud) and reporting.
Before the firm that offers forensic auditing services accept an engagement, it needs to make sure that it possesses enough resources with high competency. Besides, it should also check the details such as the audit scope and purposes of engagement with its customer. By doing so, the firm can avoid delivering services which do not meet the customer’s expectation. Both parties need to discuss and decide on the fees as well, since the fees may affect independence potentially. The audit firm should charge the professional fees according to the work they perform.
Furthermore, the firm may require to review the conflict of interest to see if providing their customer with forensic audits will cause any conflict of interest to arise. This is because some audit firms will offer both forensic audit services as well as audit services. If it provides both services, it needs to ensure that it is using the guidance properly to help it in assessing the seriousness of conflict and minimising that conflict.
As soon as the audit firm has assessed and accepted the engagement, the forensic auditors have to conduct an investigation. Its planning is similar to that of the financial statement auditing too. At the stage of planning, the auditors have to determine, examine and record certain things. As an instance, when they deal with a case, they need to know the nature of fraud by getting the related information which includes when the case occurs and its duration, the individuals who may be involved in, as well as the nature of losses. Also, the auditors should quantify the financial losses the company need to face as a result of that case.
As the court will use the reports, forensic auditors need to ensure that the evidence that they acquired using numerous audit approaches and use in supporting the case is strong and clear.